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Saturday, February 4, 2017

Market wrap-up and the outlook for the week ahead 2/4/2017

I wasn't too sure about direction on Thursday or Friday, but I did say we were "consolidating" (bullish). and Friday we saw the market rally to lower recent highs. There's something you'll never hear the dishonest financial news report, "Market falls short...".

New highs would technically rule out a wave 2 suckers rally, so the fact that the market did not break out is important. Learn basic Elliott Wave Theory, and you'll get it. I'm beginning to think we've already seen the top in this market, but I can't confirm it, yet... Just looks like wave 5 ended with a little false breakout of the top of the smaller triangle pattern on the $NYSE chart below. Wave 5 throwover is common.

No new high on the $NYSE

No new all time high on the Global DOW points to a bear market, despite the rally of the past year, and a primary wave (C) is a dreadful thing. 

Canada looks like it's broken. The trend is your friend until it isn't... anymore. 

No new (recent) high on the $SPX 

More detailed 2 hr chart, and what I have marked as a "possible head-fake wave b", may have actually been the top in this market. A crash would confirm a major top, but so far we haven't seen a lot of panic, only scared short sellers panic buying. Support at 2288, expected to break again.   

The $VIX bounced out of the hole right at my pink line @ 9.97

Also looks like a major bottom on the $VIX on one of my long term charts. 

Don't trust the trolls, or even your emotions, trust the $VIX.  


The recent run up to the high on the all time high on the DOW looks like a zigzag, rather than the impulse you would expect to see in wave 5. It pulled back to my green line, and then shot up to a new high (marked wave 3). That's 3 waves (a-b-c), not 5. Even though the Dow broke above 20k again (something I said was possible in a previous blog, and that "financials could lead"...),  an extended topping pattern cannot be ruled out, and until the range we're trading in breaks, I would expect more head fakes. For clarification the range I'm referring to is the broadening sideways triangle in blue.  Typically you want to see every last retail bear capitulate at a major top, and I think Dow 22300+ would do it. Maybe this doesn't happen until April. Then, "sell in may, and go away", comes into play?

Speaking of head fakes: Natural gas broke bellow the previous low, but that's ok because we're looking for wave "b", and wave b can break past the beginning of wave "a" (*according to Elliott Wave rules and guidelines). We call this a running wave "b", because it runs past the beginning of wave a. Wave 2, on the other hand, does not run past the beginning of wave 1.

Still looking for a powerful wave c in $NATGAS. Let's call $3 psychological support.

Using Goldman Sachs $GS as an example of what happens when wave b overshoots... beware the short squeeze! The result of too many retail short sellers in this market is explosive panic covering. 

Speaking of financials - We knew Trump was going to gut Dodd-Frank months before he won the election, so what's the future catalyst for bank earnings? Higher rates? I doubt that very much. 
Here's the rate on the 10 yr. 

And since financials are leading this is what I'd like to see in the short term. 

$RIFIN is the financial index that 3X ETS's $FAZ & $FAS track, and these 2 can be pretty volatile. I prefer $FAZ right here, obviously.   

Oil continues to trade flat, and also trading at lower highs.   
Support on Brent remains $53.75. $52 on WTI Crude
Bearish once it breaks $52 again. 
How many weeks does it take to build a short position? Apparently many! 

Energy is trading back above support.  A wave iii of 3 of C would be almost too good to be true, but that's how I count it. 
The one to watch is $XOM 
Sell gold miners 

Since the market painted a white candle on Friday, I'd expect to pause and close relatively flat on Monday. It would be very surprising to see an immediate reversal, but we'll see....

Take care, AA  

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